The supply chain is one of the most complex processes that a company must control. This is for many reasons including its vastness, its complexity with multiple businesses involved, its expanse over multiple geographical locations with multiple currencies and time-zones to contend with, and last but not least, its involvement of complex and vulnerable shipping modes.
In this article, we consider how a supply chain can fail while learning from three case studies. After all, if we do not learn from others’ mistakes, we are doomed to repeat them.
Supply chains have increasingly been influenced by globalisation, which can see several different components for one product being manufactured off-shore. On one hand, this means companies have access to a larger range of supplies at cost-effective prices, however the other hand reveals an inability to sufficiently monitor and control all these suppliers thereby often sacrificing the quality of the product. Bigger is not always better!
Leading on from the first point, with globalisation, supply chains are becoming more complex. In some instances, the supplier who is contracted to do the job, subcontracts it out and therefore, you really do not know where your product is truly coming from.
With increasing competition in the market, the pressure is on each party in the supply chain to complete the work in less time and for a lower price. The cost of this is product quality and undoubtedly, proper working conditions.
A big question a business should ask themselves when selecting suppliers for their chain is where these
suppliers are geographically located. If all suppliers are located in the same region, then a large disaster could affect all of them. This is what happened to a lot of companies in the Japanese earthquake of 2011.
Social media risks
Social media is a double-edged sword for businesses. It can be extremely effective in drumming up interest and business by targeting customers who would not have otherwise been aware of the company’s services. However, as soon as something goes south, negative word of mouth is quickly forwarded through social media outlets. Suddenly, it is extremely hard to control the damage and take corrective action.
One popular case study in supply chain management literature talks about the misfortune of Target when it tried to expand into the Canadian market from America. They bit off far more than they could chew and opened 124 stores and three large distribution centres at once. This overestimation was clearly evident in the oversupply of the warehouses and bare shop shelves. Of course, this resulted in disgruntled customers and a loss of $1 billion.
Recently in the UK, half of the KFC franchises had to shut because they had run out of chicken. Considering this is the cornerstone product of the brand, it is really not a great look to have low stock. The reason for this unfortunate inventory management nightmare was a change in their third party logistics provider. While some errors may be unintentional or unavoidable, the lesson here is to thoroughly vet any suppliers and ensure they come with a wealth of successful experience.
In 2007, Mattel had to recall 1.5 million toys because their main supplier for the ‘Cars’ franchise had subcontracted the painting job to a small player. This company opted to use lead-based paint instead of the paint provided by the supplier. When this happens, it is very hard to control until it is too late. The lesson here to know exactly who is supplying what and to ensure every part of their process is rigorously audited.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.